Summary

Plug Power is trying to tap the fast-growing fuel cell market, and it is doing so successfully.

Plug Power is investing in its sales force and infrastructure to profit from the fuel cell industry.

Plug Power's GenDrive and GenKey solutions are finding solid traction at customers such as Wal-Mart, and its partnership with Ballard Power Systems is also yielding results.

Plug Power's earnings are expected to grow at a tremendous rate, making it a solid growth pick.

Plug Power is also expanding its global reach to make the most of the fuel cell opportunity.

Fuel cells look like the next hot thing in energy, and Plug Power (NASDAQ:PLUG) is making the most of this opportunity. Although Plug Power had a disappointing start to the current fiscal year, as it reported a higher-than-expected loss in the first quarter, the long-term opportunity remains intact. Its results were affected by a charge related to a change in fair value of previously issued common stock warrants. However, in partnership with its supplier Ballard Power Systems (NASDAQ:BLDP), Plug Power seems well-positioned to tap a market that's expected to grow at an annual rate of 22% during the period 2014-2020.

Investing for the future

Although Plug Power's first-quarter numbers were slightly disappointing, management is on track to make the company profitable. According to CEO Andy Marsh:

We need more people on the street so we can grow this company quicker than our projections.

Hence, the company is investing in its sales force to grow the business. This might lead to an increase in costs, but for the long run, it looks like a wise move, as Plug Power will be able to tap more of the fuel cell market. According to management:

By increasing the sales staff, we can increase our target revenue in 2015 from $100 million to $135 million for material handling.

Also, in a bid to raise capital, Plug Power recently went for a secondary stock offering, which closed just a few weeks back. This offering raised $116 million worth of new capital. This will help the company to support continued growth, and it can fund capital investments and acquisitions to accelerate its revenue and enhance its margins.

Product development and infrastructure moves

Plug Power is highly focused on research and development. It has been setting the pace in the industry, as it was the first hydrogen fuel cell company to address the problems of developing fuel cell infrastructure for vehicles. Plug Power addressed this issue by focusing on powering a type of fleet vehicles, a forklift truck, which consumes hydrogen at a rate comparable to the consumption at a present-day gas station.

The company has made the most of this innovation. Now, it aims to explore hydrogen and infrastructure as an opportunity to grow revenue. It is trying to achieve this by offering its customers a turnkey package to convert a facility, named GenKey.

Plug Power's GenKey sites are natural distribution points to provide hydrogen to retail stores and wireless sites. A GenKey site can serve around 50 to 75 retail stores and a distribution center. Plug Power believes that it can more than double its sales if stores associated with the distribution centers are included.

Focus on customers

Plug Power is also focused on customer service, as it is constantly in touch with customers to know the issues they are facing. Consequently, it has identified three issues. First, batteries are often not charged when a delivery truck comes to the store. Second, employee turnover rate in stores is high; and third, the staff often does not follow proper procedures for charging batteries.

The result is that trucks have to wait for around half an hour or more to have minimum charge to unload. Moreover, uncharged batteries could mean a missed opportunity to sell a product. But, contrary to this, a fuel cell can be refueled to full power in less than two minutes, which is an overwhelming advantage.

As a result of the advantages that it looks to provide, Plug Power is anticipating an increase in demand for its products. It expects to ship around 650 GenDrive units in the second quarter of 2014 to Wal-Mart (NYSE:WMT), P&G (NYSE:PG), Volkswagen (OTCPK:VLKAY), Central Grocers, and Ace. These are just a few of its customers, as Plug Power has more orders under its sleeve. Its first GenFuel facility is expected to be deployed this month. In addition, two more Wal-Mart sites are scheduled to be brought on line in the third quarter, and it expects to ship another 500 GenDrive units.

Expanding its wings

The company has also purchased ReliOn, which is a developer of modular air-cooled hydrogen fuel cell stacks and unique low-cost stack assembly systems. This will help Plug Power add a second supplier for fuel cell stack technology for its low-power products.

As part of its global expansion plans, Plug Power has also entered into a joint venture with Air Liquide, which has gained momentum in Europe. It has also signed an MOU with Hyundai Hysco to create a joint venture that will develop, manufacture, and sell hydrogen fuel sales throughout Asia using Hyundai's advanced stack plate technology. The company expects this partnership to increase its reach in the Asian markets.

Relationship with Ballard

The fact that Plug Power's stack supplier, Ballard Power Systems, is also strengthening its infrastructure can be a positive for the company going forward. Ballard sees opportunity in Southeast Asia and India. It cites that unreliable power grids present in these regions will lead to strong demand for fuel cells going forward.

Also, in the U.S., network hardening activity is taking place, so this is another growth area for fuel cells. Ballard has a strong pipeline in markets such as Japan, Indonesia, the Philippines, and South Africa, which is why even Plug Power can extend its reach in these regions as the infrastructure is already present.

Moreover, Ballard is expanding its wings in new geographies. It has successfully completed product trials in Pakistan, Australia, and China. Now, it will be making a demonstration in the coming weeks in Myanmar, while a trial with a major U.S. telecom operator is also in the cards.

Final words

Plug Power isn't cheap. The company has a forward P/E ratio of 250. But, its earnings are expected to grow rapidly, which is why investors shouldn't be discouraged by a high P/E. This year, Plug Power's bottom line is expected to grow almost 70%, followed by 120% next year. In addition, the company seems to have a relatively solid balance sheet with just $3.7 million in debt and $63 million in cash.

Hence, Plug Power can easily continue investing in the business and bolster its performance going forward. So, despite running up around 209% so far this year, Plug Power is still a good buy.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.